Emerging ETF Falls as Ruble Tumbles to Record Amid Currency Rout

The iShares MSCI Emerging Markets Index exchange-traded fund fell to a five-month low as an increase in interest rates from Turkey to South Africa failed to prop up currencies. Russia’s ruble slumped to a record low.

The emerging-market ETF fell 0.9% to $37.98 at 12:34 p.m. in New York. The MSCI Emerging Markets Index added 0.4% to 937.58. The Borsa Istanbul 100 Index led losses among 94 world gauges tracked by Bloomberg. Turkey’s lira slid as much as 3%, while South Africa’s rand declined to a record against the euro and the ruble sank 1.2% against Bank Rossii’s target dollar-euro basket. Brazil’s Ibovespa dropped on concern a weaker real will cause inflation to accelerate.

Turkey’s Governor Erdem Basci is fighting to restore credibility eroded by a currency run that gained speed amid domestic upheaval and a global rout of emerging markets. The South Africa Reserve Bank unexpectedly lifted its benchmark rate, following central banks from India to Brazil that tightened monetary policy to bolster their currencies. The Federal Reserve ends a two-day meeting with economists projecting a further cut to its bond-purchase program.

“What the central banks are doing right now will not solve the problem,” Wayne Lin, a portfolio manager at Baltimore-based Legg Mason Inc., which oversees $680 billion, said by phone. “They’re helping their currencies in the short term, but hurting the economy in the long term. Such measures only work when you have the flexibility in your economy, and a lot of emerging markets don’t.”

Global Selloff

Mark Mobius, chairman of Templeton Emerging Markets Group, said inflows into developing nations will resume later this year following a selloff triggered by the Fed’s tapering monetary stimulus. Investors sold stocks worldwide ahead of the Fed’s decision, where the central bank will announce reducing bond purchases by a further $10 billion next month, according to the median estimate of 78 economists surveyed by Bloomberg.

“People are enjoying what they see as a bull market in the U.S.,” he said in an interview in Johannesburg today. “As we go forward, we’re going to see a lot of overweight positions in the U.S. So, given the fact that emerging markets are still growing fast, given that they have low debt-to-GDP ratios, given that they have high foreign-exchange reserves, we believe that money will be flowing back in again to emerging markets.”

Brazil, Russia

Brazil’s Ibovespa fell for the fourth time in five days as Itau Unibanco Holding SA slumped after announcing the acquisition of Corpbanca SA in Chile. Pulp producer Suzano Papel e Celulose SA SA rallied on the outlook for exports as the real dropped. The real retreated to the weakest level on a closing basis since Aug. 21.

Russian shares had their longest losing streak since April as the ruble’s slide to a record low prompted investors to sell the cheapest emerging-market equities. OAO Sberbank, the nation’s biggest lender, slid to the lowest since Sept. 13. The ruble weakened 1.2% to 40.9632 against Bank Rossii’s target dollar-euro basket, the lowest level on a closing basis, as of 6:01 p.m. in Moscow.

The Borsa Istanbul 100 Index of shares slumped 2.3% as Turkiye Garanti Bankasi AS drove losses in lenders. A doubling of interest rates failed to assuage concern that Turkey’s economy will be left exposed by a slowdown in China and a reduction in U.S. monetary stimulus. The lira tumbled before resuming gains and rising for a third day.

Inflation Pressures

South Africa’s rand sank to a five-year low versus the dollar. The South African Reserve Bank raised its policy rate for the first time since 2008, citing inflation pressures caused by the rand’s decline.

China’s stocks rose for a second day as banks advanced amid near record-low valuations and information technology companies surged. China Minsheng Banking Corp. and Huaxia Bank Co. gained at least 1.1%. Seven companies including Porton Fine Chemicals Ltd. and Netposa Technologies Ltd. were all suspended from trading after jumping by the 44% daily limit on their Shenzhen Stock Exchange debuts.

South Korea’s won climbed the most in six months after reports showed the annual current-account surplus widened to a record and factory output beat estimates.The premium investors demand to own emerging-market debt over U.S. Treasuries rose five basis points, or 0.05 percentage point, to 345 basis points, according to JPMorgan Chase & Co.